International drilling picture playing follow the leader

Published 7:00 pm, Saturday, May 23, 2009

Drilling activity in the Gulf of Mexico and internationally appears to be playing a game of "follow the leader," judging from the comments of local business leaders.

While drilling activity in the gulf and oversees appears to be proceeding normally at this time, those sectors offer a poor barometer for the true world oil picture, Kirk Edwards, past president of the Permian Basin Petroleum Association, said.

"In the Gulf and internationally those projects are contracted out six months to a year in advance and can't be stopped without six months to a year's notice," Edwards noted.

So at this time the oil slowdown that is so severely affecting domestic drilling activity is not being seen statistically, although Permian Basin companies with an international presence are feeling the pinch in that arena as well.

In fact, Edwards said, the drilling falloff in the United States "is the sharpest we've ever seen in the drilling industry."

Meanwhile, the international rig count, which had climbed to 1,100 from only 550 rigs in 2000, has dropped off by only 9 percent, Edwards said. "That compares to the 50 percent falloff domestically," he added.

Hoxie Smith, director of Midland College's Petroleum Professional Development Center, said most oil companies' international activities have been affected by the oil slowdown just as have the domestic activities.

"What has happened to oil prices has slowed the business worldwide," Smith noted.

While the price of oil has responded nicely this year and is now at $60 a barrel, Edwards said, the price of natural gas remains low at only $2-$3 per mcf and about 80 percent of the drilling activity is for natural gas.

Still, there is a reason for the oil industry to take heart, Edwards said. The situation could be even worse.

"At least we bottomed out at $60 a barrel which is better than bottoming out at $35 a barrel," Edwards said.

Other companies involved in oil and gas domestically and internationally say they are beginning to see indications of a turnaround.

Larry Richards, president and CEO of Hy-Bon Engineering in Midland, said he had just returned from a trip to North Africa and the Middle East. Most of the business people he talked with seemed positive about the future, Richards said.

"I think we'll start to see some turnaround by the end of this year as long as we don't see oil prices drop below $50 a barrel," Richards said.

Richards said none of the large projects Hy-Bon is involved with have been canceled, although some smaller projects have been delayed.

C.R. "Bubba" Saulsbury Jr., vice president of business development for Saulsbury Industries in Odessa, said he also is seeing an indication that business may be picking up.

"The oil and gas slowdown is definitely affecting us now on the work we're doing," Saulsbury said. But, he noted, the company is much more diversified today, working in mining, manufacturing, power, petrochemicals and oil and gas.

"The oil and gas slowdown has affected us considerably," Saulsbury said, "but we've not had any layoffs. I'm seeing signs of it picking back up."